Stale-dated check definition: A stale check is an outdated check that the recipient hasn’t cashed within a certain timeframe. A check is typically considered stale six months or 180 days from the date written on the check.
As a small business owner, you can use accounting software to manage your payment methods. But now and then, you may need to write a check to a vendor or receive one as a form of payment.
One of the most significant problems with checks is that it’s easy to lose them, leading to stale-dated checks. A stale check can create an accounting hassle. Let’s look at how to handle stale checks and when checks expire:
The US Uniform Commercial Code (UCC) specifies that banks are not obligated to cash a check more than six months old.
The UCC states, “A bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, which is presented more than six months after its date, but it may charge its customer’s account for a payment made thereafter in good faith.”
Almost every state requires a business to perform due diligence by contacting the owner of the unclaimed property.
Every US state has escheatment laws that require a business to hand over unclaimed property after a specific period. Each state has different rules regarding when you need to report unclaimed property. The length of time it takes uncashed to become unclaimed property is referred to as the “dormancy period.”
Uncashed checks to vendors, contractors, payroll, and shareholder dividends are all potential unclaimed property.
The exact due diligence requirements vary by state, but a formal letter to the check recipient is usually a good idea. Letters should alert the owner of your obligation to turn over the property to the state. Allow a reasonable amount of time to respond.
You should also keep diligent records of your attempts to contact the business owner.
While personal and business account checks expire after 180 days, other types of checks can have different expiration dates.
Here are the key expiration dates for various types of checks:
US Treasury checks are government-issued checks valid for one year from the date issued. Even if they expire, you can still get a replacement by contacting the agency that authorized the check.
A cashier's check is essentially a check drawn on the bank's own funds. The bank guarantees the funds. These are typically valid for 180 days. Certified checks are personal checks from a bank account and guaranteed by the bank. They typically don't expire but are often subject to state unclaimed property laws.
Money orders generally don't expire, but some issuers may charge a fee if the payee doesn’t cash it within a certain time frame.
Some businesses may print "Void after 90 days" on their checks. While banks will usually still honor these for up to six months, it's best to deposit them sooner rather than later.
Let’s say you have an expired check. The first thing to do is contact the issuer. The company may be willing to reissue the check or make an electronic payment. If you haven’t had any luck contacting the check issuer, consider working with your bank.
Some banks may deposit checks if they have reason to believe that the issuer is legitimate and the company has enough funds in its account to cover the check.
If these options don’t work, you can check with the state where the issuing company is located. Remember that escheatment laws require companies to turn over unclaimed funds. As the rightful owner of these funds, the state should hold them in case you claim them.
If your bookkeeper or accountant sees that you have issued a check that’s approaching expiration, you should contact the other business or person and encourage them to cash the check. If they’ve lost the check, stop payment on it and issue a new one. A stop payment informs your bank that you do not want the check cashed and essentially voids the check.
Say you have a stale-dated check issued to a vendor. It may be tempting to merely reverse the expense. However, unclaimed property laws complicate the process. Even if the payee never cashes the stale check, this doesn’t mean that your business receives extra cash.
Instead, the money likely belongs to the state, and you’ll have to go through the unclaimed property and escheatment process.
As a small business owner, you should be writing checks from your business vs. personal bank account. The bank can choose not to honor it if it’s older than six months.
If you try to deposit a stale-dated check, here’s what can happen:
As a business owner, you should take time to clearly outline how your company handles stale checks. The first step to implementing a practical company policy for stale-dated checks is to understand state laws. Consider the type of unclaimed property you could potentially have and investigate the state dormancy period for each.
If you receive a check, your company policy may include depositing it within one month to ensure you do not lose it. Also, your policy should clearly outline what you are going to do if a recipient does not cash a check that you’ve issued.
To help avoid stale checks:
Ensure accurate accounting by maintaining meticulous records.
Since you owe the money to either the state or the property owner, plan to monitor uncashed checks and check in periodically with the payee.
Stale-dated checks can be a minor inconvenience or a major headache, depending on how you handle them. If you are approaching the 180-day date, take action accordingly. Dealing with outdated checks
With accounting software like QuickBooks Online, you can accept payments anytime, anywhere. It allows you to streamline check management and avoid stale-dated check issues altogether.
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